Insurance coverage of the Export Guarantee Fund of Iran increased by 30 percent in the first eight months of the current Iranian year compared to the same period of the previous year, IRNA quoted the CEO of Export Guarantee Fund of Iran (EGFI) as saying on Saturday.
During the eight-month period (starting March 21, ending November 21) the fund has provided exporters with more over 14 trillion rials ($522 million) of insurance coverage, said Taher Shah-Hamed, concluding that “Iran is among the riskiest countries to invest in.”
“Currently, the capital of the fund stands at 4.8 trillion rials ($181 million),” said Shah-Hamed, adding that according to the global index of export credit and investment insurance , the fund can undertake commitments seven times more than its capital.
“However, the commitments of the fund in the first eight months of the current year amounted to over 48 trillion rials, which is 11 times more than the fund’s capital,” said Shah-Hamed, indicating that the risk of the fund is higher than international standards.
“Although in the field of national economy, the government has been operating successfully in curbing the inflation, in the international arena we are yet to see positive results” he said, adding that in international categorizations which rank the countries regarding the risk of investment, Iran is rated in the same category as high-risk countries like African countries, as well as Afghanistan, and Iraq.
Effects of Sanctions
Until 2006, Iran was categorized in the group of countries with an average risk of investment, said Shah-Hamed, adding that “the higher the risk of investment in a given country, the higher the financing cost.”
Whilst under sanctions, one of the biggest problems facing the exporters is the lack of access to information about foreign customers, as international survey institutes fail to cooperate with Iran in this field, said Shah-Hamed, adding that “the required information was easily purchased before the sanctions.”
Setting Afghanistan and Iraq as two examples of major target markets for the Islamic Republic, the official said lack of formal statistics and data about the two markets have created problems for Iranian exporters.
“Corporate and individual exporters of goods and services do not have access to financial statements and business backgrounds of their customers in these countries,” he said.
Nevertheless, these restrictions have never stopped EGFI from supporting Iranian exporters and investors, he added.
To overcome this problem, he said, the fund is examining qualitative indexes of these markets to enable the exporters to safely export their goods and services to these countries by making use of the fund’s coverage.
Fund’s Capital
Although the government had planned to raise the fund’s capital, said Shah-Hamed, it is not incorporated in the recession exit plan – the governments’ most recent economic plan.
However, in a general assembly meeting of the EGFI, the minister of industry, mine and trade promised to raise capital of the fund by $1 billion, he added.
“If the fund is to finance 10 percent of the non-oil exports, there is no choice but to increase the fund,” asserted the official.
Commercial Banks
The CEO went on to express concerns about fact that commercial banks avoid financing exports, saying that “of the total $31.5 billion dollars of goods exported in the past year, only $2.5 billion was financed by commercial banks, which is less than 10 percent.”
This is while in other countries, the capital market finances over 60 percent of the exports, he added.
In a bid to solve the problem, the fund has signed agreements with state-owned and private banks to make them participate in the process of financing exports by allocating a share of their loans to exporters, whether in domestic or foreign currency, he said adding that the practice has proved successful so far.
About high interest rate on export loans, criticized by the private sector as not being economical, Shah-Hamed said that all around the world the governments sponsor preferential loans.
Preferential loans are government sponsored initiatives to stimulate capital investment, especially in less-developed areas with high rates of unemployment, by advancing loans at below market interest rates.
“Commercial banks believe they cannot provide loans for export by charging interest rates lower than the specified 25 percent,” he said. However the EGFI has asked them to reduce their interest rates, he added.
By helping to transfer the risk of potential overdue debts from the banks to the fund, the initiative seems to encourage the banks to reduce their interest rate on export loans, said Shah-Hamed, adding that it has proven to be feasible.
Established in 1973, EGFI is the official Export Credit Agency of Iran, 100 percent government-owned and affiliated to the ministry of industry, mine, and trade.
